UOL Group - CGS-CIMB 2018-05-11: Rolling Out New Launches

UOL GROUP LIMITED SGX: U14

UOL Group - Rolling Out New Launches

UOL Group’s 1Q18 net profit of S$73.8m was slightly below, at 17% of our FY18F forecast.
Amber 45 launch saw strong preview interest; Tre Ver to be rolled out in 3Q.
Office rents to benefit from office upcycle; hotel performance to improve.
Maintain ADD with a slightly lower Target Price of S$9.65.

UOL saw an 89% y-o-y jump in 1Q18 revenue to S$661m due to consolidation of UIC’s revenue. Stripping out the latter, UOL’s revenue was 7% lower y-o-y with the completion of Riverbank @ Fernvale in 1Q17.
Net profit slipped 8% y-o-y to S$73.8m largely due to increased amortisation and depreciation of fair value uplifts of S$7.6m with a purchase price allocation exercise for UIC conducted last year and accelerated depreciation charge of S$6.6m for the Pan Pacific Orchard, ceased operation in 2Q18 for redevelopment.

Excluding UIC consolidation, development revenue would have been 7% lower y-o-y. Topline of $314.9m was underpinned by higher sales and recognition of ongoing projects, including The Clement Canopy (84% sold) as well as Mon Jervois (74% sold) and V on Shenton (85% sold).
UOL had recently previewed its 139-unit Amber 45 project at cS$2,200psf, amid strong buying interest, and is planning to launch the 729-unit The Tre Ver in 3Q18. This should bolster earnings in the coming quarters.

On a comparable basis, rental income would have dipped 4% y-o-y in 1Q due to negative office rental reversion and lower contribution from OneKM mall. As with other office landlord peers, the negative spread narrowed significantly due to recovery of the office leasing market.
OneKM is expected to undergo AEI to improve operating performance. Hence, recurrent rental income should remain relatively stable.

Hotel operations delivered a 9% y-o-y improvement due largely to maiden contribution from Pan Pacific Melbourne as well as higher Revpar from its Singapore, Australia, Vietnam and Malaysia hotels.
Going forward, management expects the hospitality sector in Asia Pacific to benefit from improving global economic outlook, except in China and Myanmar where trading conditions remain challenging.

We tweak our FY18-20F EPS estimates marginally post results. Our RNAV and Target Price are adjusted slightly to S$12.07 and S$9.65, respectively. We maintain our ADD rating.
Balance sheet is sound with a net debt-to-equity ratio of 0.21x which could provide catalysts when more capital is deployed into new investments.
Downside risks include slower-than-expected pace of sales at new launches.

LOCK Mun Yee CGS-CIMB | https://research.itradecimb.com/ 2018-05-11

SGX Stock Analyst Report ADD Maintain ADD 9.65 Down 9.670